What Does It Mean to Refinance a Home Mortgage Loan?

Restructuring a mortgage can be done a couple of different ways, depending on your needs.

Rate and Term Refinance

This option is for people who want to refinance to a lower interest rate to reduce their monthly payments or for people looking to reduce the term of their mortgage from a 30-year term to a 15-year term.

Cash Out Refinance

This is a very popular option for people who have built equity in their home and wish to use that equity to achieve financial goals like paying off high interest credit debt, paying for home improvements, starting a college tuition fund, investing in another property, or creating the often over looked necessity of a “rainy day” or Emergency Cash Reserve Fund.

Generally speaking, you can apply for a refinance at any point during the term of your loan after you have made at least 6 payments. The entire process can be completed in less time than most people think. US Mortgages can get you from application to close in under 21 days or less, as long as the requested documentation is provided quickly.

The good news is you don’t need to use the same mortgage lender for your refinance as you did for your current home loan. If you’re not happy with your current lender’s service, or if you find a lender offering better options, you’re always free to refinance with the mortgage lender of your choice.

5 Reasons to Refinance Your Home Mortgage Loan

So, how can a mortgage loan refinance help you achieve your financial goals? Here are the five of the most common reasons to refinance your loan.

Get a lower interest rate

A lower interest rate simply means that you’ll pay less in interest charges over the life of the home loan.

Get a lower interest rate

A lower interest rate simply means that you’ll pay less in interest charges over the life of the home loan.

Interest rates are on the rise, but they are still historically low. Throughout the 1970s, interest rates ranged between 7% and 12%. In the 1980s, interest rates reached over 18% before dropping back to a reasonable 7-9% range in the 1990s. Then they hovered around 6% in the 2000s, leading up to the Great Recession.

Today, you can still get interest rates around 5% or under with good credit. If your current mortgage was structured before the 2009 recession, or if your credit has substantially improved since you applied for your current mortgage, you can probably refinance now to get a lower rate. Saving just one percentage point on your interest rate could save thousands of dollars in interest over the term of your loan.

Waiting is what costs most people the opportunity to save. With interest rates on the rise, you’ll want to lock in at today’s more competitive interest rates before the next increase. It’s important to note that looking at your mortgage debt in a silo is what costs homeowners the most. It’s important to look at your entire debt profile and the monthly costs to service that debt. Many savvy homeowners have freed up hundreds if not thousands in monthly cash flow, simply by looking at better options to manage that cashflow.

Reduce your monthly payment

Getting a lower interest rate can reduce your monthly mortgage payment, but it’s by no means not the only way to lower your overall monthly ...

Reduce your monthly payment

Getting a lower interest rate can reduce your monthly mortgage payment, but it’s by no means not the only way to lower your overall monthly payments and improve your monthly cashflow. Looking at your overall debt service is something we recommend to all our clients that are considering refinancing their current mortgage.

For example, your monthly mortgage payment may include escrows or PMI (private mortgage insurance). This is typical for mortgage loans that have less than 20% down payment or equity when they start. However, with the tremendous increase in property values over the past 5 years, you may be able to refinance to eliminate both pre-paid escrows as well as the PMI.

Another thing to consider is you overall monthly payments towards debt. This debt may include high-interest credit card debt that doesn’t get paid in full each month, car loans, leases, second mortgages, HELOCs (home equity line of credit), or other form of consumer debt. Leveraging cash out during a refinance from your equity, even if the interest rate on the refinance is higher than your current rate, you could still lower your overall monthly debt payments by hundreds if not thousands of dollars. Best of all, the interest paid against your mortgage is tax deductible unlike credit cards and other forms of consumer debt.

The great news is you can accomplish your short-term goal of reducing your monthly payments and match your remaining repayment term without starting your loan term from scratch. This saves the “double” interest that most people end up paying when refinancing their mortgage and getting a new 30-year home loan after paying 7 years of interest on the mortgage you currently have.

Change your loan type

Change your loan type

If you have an Adjustable Rate Mortgage (ARM), you may consider refinancing to change your loan type to a fixed-rate mortgage.

With ARMs, your loan interest rate is tied to an index ( 11th District cost of funds index, or the London Interbank Offered Ratestrong>, for example). As interest rates on the index rise, so does the interest rate on your mortgage. With a fixed-rate mortgage loan, your interest rate is locked in for the entire term of your loan.

Introductory ARM rates are typically lower than conventional rates. This incentivizes borrowers to give them a try. The introductory rate will last for a set period of time before the rates can start adjusting with the index. You may have seen “5/1 ARM”; this means the introductory period lasts 5 years, then rates are adjusted every year after (indicated by the 1 in 5/1).

With interest rates currently on the rise, and expected to continue rising for the foreseeable future, your best bet is to refinance your ARM to lock in today’s lower fixed mortgage rates.

Pay off your mortgage faster

If you can afford to increase your monthly payments slightly, you can refinance from a 30-year loan to a shorter loan term and accelerate the ...

Pay off your mortgage faster

If you can afford to increase your monthly payments slightly, you can refinance from a 30-year loan to a shorter loan term and accelerate the payoff date for you mortgage. This is extremely appealing to people who want to be debt free prior to retirement.

Shorter loan terms are usually granted lower interest rates. Since you’ll be paying off your loan so much faster, you can potentially save tens of thousands of dollars in interest over the term of your loan.

Refinancing from a 30-year loan to a 15-year loan is also a very popular option. Contrary to the common misconception, your monthly mortgage payment will not double when you refinance from a 30-year to a 15-year. Your monthly payments on a 15-year loan may be less than you might think.

There are a few reasons for the lower-than-expected 15-year loan mortgage payments. First, you may have already paid down some of the principal on your loan, so the loan balance will be lower for the refinance. You’ll typically qualify for a lower interest rate on the shorter term, which will affect your monthly payment. In addition, because you’re paying over a much shorter term, the interest amortization schedule will be more favorable.

You may also consider paying your half of your monthly mortgage payment every other week. This strategy effectively creates one additional mortgage payment each year and can cut years of your repayment schedule. You can do this on your own or you can set up bi-weekly billing to automate the process.

Cash out some of your equity

“Equity” is simply the current appraised market value of your home minus the amount you still owe on the home mortgage loan. Your equity ...

Cash out some of your equity

“Equity” is simply the current appraised market value of your home minus the amount you still owe on the home mortgage loan. Your equity grows as:

You pay down the principal of your loan

Local real estate market prices increase

You invest in renovations that add value to the house.

You can unlock some of your equity through a refinance if you need cash. A Cash-Out refinance allows you to access your equity at the lower, tax deductible interest rates of a mortgages by using your home as collateral.

There are several very smart reasons to consider accessing some of your equity.

Maybe you have unexpected medical expenses that you simply can’t cover with your savings. Or perhaps you have the opportunity to purchase an investment property, and you would like to leverage your equity for the down payment. Maybe you just want to renovate your home without using all your cash reserves to do it.

Savvy homeowners have also cashed out their equity to pay off high-interest debt like credit cards and auto loans. Credit card interest rates can sometimes exceed 20%. Why not refinance to cash out enough money to pay off the credit cards? Instead of paying interest rates of over 20%, you’ll just pay the single-digit interest rates on that debt. Plus, mortgage interest is tax deductible. Interest on credit cards and auto loans is not. So, you can simultaneously reduce your tax burden and your credit card interest!

Lastly, the equity in your home can also be used to create an Emergency Cash Reserve Fund also known as a “rainy day fund.” Not having an Emergency Cash Reserve Fund can be catastrophic for homeowners and families should the unexpected happen, like a sudden job loss or medical emergency that limits and eliminates your monthly income. Having the equity in your home is a good feeling but it’s a false sense of security if you don’t have access to 6 to 12 months of cash to cover expenses like you mortgage payments, car payments, utilities, school tuition, and basically living expenses like gas and groceries.

Your equity is always accessible as long as you maintain regular employment income and good credit. However, if you lose your job, you simultaneously lose access to that equity because you will no longer qualify for the cash-out refinance. What could be more important than protecting your home and family? To see how much you should have put away for emergencies, check out our Cash Reserves Calculator.

Protect your equity/down payment from loss for 10 years

You may have heard us or others talking about this. Maybe you're even wondering, "what does this mean," "is it real," or "how does it work?" Well, ...

Protect your equity/down payment from loss for 10 years

You may have heard us or others talking about this. Maybe you're even wondering, "what does this mean," "is it real," or "how does it work?" Well, the answers to those commonly asked questions are YES — This is real AND insures your home's value based on today and lasts for 10 years!

This is something unlike anything ever before in the mortgage lending industry. You can protect your down payment and/or equity (if you already own a home) for 10 years! However, there are some limitations, so the maximum amount of protection is $200,000 or 20% of the value of your home.

Most of us 35 to 40 years old (or beyond!) remember all too well the ramifications of the housing crises back in 2007-2008, and what happened as values plummeted. Our unique Home Safe Equity Guarantee for refinances and Home Safe Down Payment Guarantee for purchases help ease that fear as well as protect you and your family from a potentially significant loss should you need to sell your home during the downturn.

With housing seeing a bull run for the last 8 years and Colorado at the #2 spot in the country for the amount of equity and wealth built up from housing, this is truly the right place at the right time to insure and protect your gains from vanishing like other trending values have taken already. We actually protect your equity or down payment so they don’t go away if, and when, the market makes its expected correction during a time you decide to sell.

Best of all if nothing happens and we're wrong about the future outlook, you have no risk as you are not limited in your amount of gain! You are, simply put protected from the loss!

We include this with every QM loan. "QM" is the government definition for a safe harbor or full qualifying loan deemed to be fair and in the consumers best interest for rates fees. They are insurable from any government agency like Fannie Mae, Freddie Mac or Ginnie Mae.

Get all the advantages of a purchase or refinance, as well as protection from possible loss in the future... Only at US Mortgages.

How to Get the Best Possible Interest Rate on Your Home Mortgage Loan

With interest rates having such an impact on the cost of your home mortgage loan, it pays to get the lowest rate possible.

Here are some tips for getting the lowest possible interest rate on your mortgage loan:

Maintain excellent credit. The better your credit score, the lower your interest rate. Try to get (and stay) above 740 to qualify for the best options when refinancing.

Don’t borrow more than you need. Borrowing more than the FHFA (Federal Housing Finance Agency) conforming loan limit (aka. a Jumbo Loan) typically results in a slightly higher interest rate. The 2019 loan limit for the high-value in the Denver market is has increased to $561,200.

Choose a shorter loan term. As mentioned, 15-year loans offer better rates than 30-year loans. If you can’t quite afford the payments on a 15-year loan, maybe you could try a 20-year loan. If you’d like to match the remaining term of your current loan, as you US Mortgages Personal Mortgage Adviser about the Goal Keeper Refinance™.

Shop around. Since you can refinance with any mortgage lender, talk to US First! One of our Personal Mortgage Advisers will be happy to provide you with a no cost, no obligation quote customized to meet your specific short term and long-term goals.

Important Considerations

Refinancing your mortgage isn’t a decision you should make without exhausting all of your concerns and objections. Before you apply for a mortgage refinance, here are a few questions to ask yourself.

Can I afford the new payment?

Being able to comfortably afford your new payment is the single most important factor in your decision. Your mortgage payment may go down on a typical rate and term refinance or can potentially increase with a cash-out refinance. The import consideration is can you be disciplined enough to not add additional debt outside of your ability to repay as both your credit score and access to credit grow.

What are the fees for refinancing?

There are always fees for refinancing because the mortgage lender invests a substantial time in originating the loan (gathering qualification data, creating options, processing and underwriting your new loan). Most origination fees are typically rolled into the loan itself so you don’t need to pay any of these closing fees out-of-pocket. However, it’s still in your best interest to know how much those fees are, after all, you are paying them whether upfront or over the term of the mortgage.

If you’re already a US Mortgages customer then you’ll automatically qualify for the Lifetime Origination Guarantee™ where we waive any origination and appraisal fees on your refinance. If you're not already a US Mortgages customer, you’ll receive the Lifetime Origination Guarantee™ on any home loan, so if you ever need to refinance again for any reason, you won’t pay origination or appraisal fees again.

Am I willing to use my home as collateral?

Remember, your home is always the collateral for your mortgage loan. This is what allows your mortgage lender to extend so much credit for such a low interest rate. If you continuously fail to make your mortgage payments, your mortgage lender can potentially foreclose on your home and recoup some of their losses. This is why it’s critical that you can afford the mortgage payments after your refinance.

After the 2007 banking crisis, new lending guidelines have been put in place that protects consumers from getting into loans they can’t afford. Those new guidelines, however, don’t protect the consumer from taking on additional debts that can jeopardize their overall ability to repay their debts.

4 Easy Steps to Refinancing Your Mortgage

Once you’ve decided that a mortgage refinance is the right decision for you, you’re just four easy steps from completing your refinance.

Get Your Finances in Order

Get Your Finances in Order

Before you even contact a mortgage lender, check on your finances. Is your credit score where you had expected it to be?

Want to know exactly what a lender sees for your credit and score?

Use our soft pull inquiry that does NOT impact your credit score and gives you an accurate picture of a real lender viewed credit report and score.

Unlike popular credit report sites (e.g., Credit Karma or FreeCreditReport.com) that use a consumer-based scoring model, not a lender based scoring model, ours will give you a true picture of where you are at.

You’ll need to gather some documentation to analyze your finances. For income, you’ll most likely need pay stubs for the last two months, bank statements for the last two months, and tax returns for the last two years. For debts likecredit cards, auto loans, student loans, and your current mortgage loan, you’ll need your two most recent statements.

Get a No Cost, No Obligation Quote from US

Get a No Cost, No Obligation Quote from US

Armed with the information you gathered in Step 1, you can get a quick and easy quote by phone or online from US Mortgages. This is also a good time to talk to a Personal Mortgage Advisor and get any and all of your questions answered before you actually apply for the refinance.

Apply For Your Refinance

Apply For Your Refinance

Now you’re ready to complete the application for your refinance also known as a 1003 in mortgage speak. The application will mostly ask questions about your current financial position. There may also be questions about your current loan and your home in general. This is when you’ll provide your financial documentation to the mortgage lender for review.

Submitting the application also gives your lender permission to run your credit (often times what you think is on your credit report and what shows up can be very different), confirm your employment, and order an appraisal if you are taking cash-out to confirm the current fair market value of your home.

Close Your Refinance

Close Your Refinance

There will naturally be a little legal paperwork that will need to be signed before your refinance can officially close. Make sure you have a government-issued photo ID (driver’s license, state ID card, or passport) with you. Your Personal Mortgage Advisor will let you know if you’ll need to bring a cashier’s check to cover closing costs if you choose to pay them out-of-pocket rather than rolling them into the new mortgage.

It’s also a good idea to bring a copy of your signed Closing Disclosure from the lender so you can double-check the final paperwork. The entire closing process typically only takes no more than 30 minutes.

Get Started Today!

With US Mortgages competitive rates, exceptional service, and expedited processes, your home loan is in the best hands.

If you’re interested in learning more about the opportunities offered by refinancing, contact US today for more information. You can get a free quote online in minutes by filling out a quick questionnaire. If you would like to expedite the process, we always licensed, salary-based, Personal Mortgage Advisors standing by at (720) 307-8307, to answer any and all questions you have and provide you with a Free Estimated Home Valuation and a No Cost, No Obligation Quote.

A variable-rate mortgage or adjustable-rate mortgage is a mortgage loan that typically locks in a lower fixed interest rate over a shorter period of time like 3, 5, 7, or 10 years and then adjusts based on the market. Market conditions may affect a number of different financial factors, which, cause the interest rates on an adjustable rate mortgage to rise and fall. Adjustable rate mortgages van use different indexes to establish the rate of the adjustable rate mortgages like the 11th District Cost of Funds Index (COFI), the London Interbank Offered Rate (LIBOR), the 12-month Treasury Average Index (MTA), the Constant Maturity Treasury (CMT) and the National Average Contract Mortgage Rate.

The monthly payments on an adjustable-rate-mortgage mayare usually lower during the initial fixed period of the loan making more expensive properties more affordable. However, the rates on adjustable mortgage are short-term. Short term rates are usually lower than fixed-rate mortgages resulting in lower monthly payments for the fixed period of the ARM. ARMs allow a home buyers to purchase a more expensive home. ARM are also a great loan option for short-term real estate investments of 3 to 10 years.

Adjustable-rate mortgages (ARMs), have monthly payments that start lower that a fixed-rate mortgage but can move up and down as interest rates fluctuate. The rates for an adjustable-rate mortage are usually based on other leading financial and market indexes. To check the most current rates on an ARM, contact a US Mortgages Personal Mortgage Advisor for the latest rates.

The rate for an ARM adjusts after a given time after the fixed rate period ends. It’s commonly known as know as the “adjustment period.” The most common adjustment periods for ARM loana are 3,5,7, or 10 years. After the initial fixed period the adjustable-rate-mortgage will adjust annually. This means that once a year, the loan rate adjusts to the finacial index plus the margin.

A fixed-rate mortgage is a home loan with an interest rate that stays the same over the entire length of the loan. The benefit of a choosing fixed-rate mortgage is that your P&I payment (principal and interest) will stay the same and will never fluctuate regardless of the changes in market rates.

The most popular repayment terms for a fixed-rate mortgage is either 30-years. Another common term is 15 years and typically used by older borrowers who want to pay the home off prior to retiring or savvy borrowers who want to save the interest over time and who can handle a larger monthly payment. 40 and 50 year mortgages are also now available and are most commonly used in areas with higher priced homes to keep homeownership in reach for qualified borrowers. If you're refinancing and would like to keep your remaining prepayment period the same, you should consider the US Mortgages Goal Keeper Refinance™which allows you tocustizethe term of your loan from 8 year up to 29 years without a higher interest rate.

The interest rate on a fixed-rate mortgage will vary from borrower to borrower based on loan size, location, your credit score, the length of the loan, the amount of down-payment on a purchase, and whether or the mortgage loan product is either conventional, FHA, or a VA home loan. No lender can accurately quote you a rate without verifying this information.

To know which loan option is better for you, a fixed rate or an adjustable rate mortgage is a subjective question and really depends on your personal preference and tolerance for risk. The difference between a fixed rate and an adjustable rate mortgage is quite simple. With a fixed-rate mortgagethe interest rate is set for the life of the loan and will never change. With an adjustable rate mortgage, the interest rate may be lower initially but may go up or down depending on what the index that the interest rate is tied to and where the market is at the end of the initial fixed term and beyond.

A jumbo mortgage loan, sometimes referred to as a non-conforming loan, is a mortgage that exceeds the“conforming” loan limits and usually have a slightly higher interest rate to offset the additionaal risk. Conforming loan limits were established in 2006 by Fannie Mae and Freddie Mac, and new, higher limits were established in 2018 to accomiodate for the increase in home prices. The current conforming loan limit for a single-family home is $453,100. This means that any loan of more than $453,100 is considered a jumbo or non-conforming loan. That limit can vary however, depending on the state and county the home is located in. There are roughly 200 counties in the U.S. where the loan limits are higher due to higher home prices. There are 18 counties in Colorado that exceed the threshold of $453,100.

You can talk to a Personal Mortgage Advisor to find out what your conforming limit is or use this link for a map detailing each state’s individual requirements: fhfa.gov/DataTools/Tools/Pages/Borrower-Assistance-Map.aspx

Fannie Mae has made some changes recently to the down-payment requirements for purchasing property with a high balance mortgage. The amount of equity required for a refinance is lower than it is for a purchase. The down payment for a conventional jumbo loan is typically 20% but you may qualify for a lower down payment with an FHA or VA loan if you're eligible.

Several different factors are used. We suggest getting started by contacting a US Mortgages Personal Mortgage Advisor who can walk you through the qualification process for buying a home and answer any additional questions you might have including: